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SEC’s New Custodian Changes Could Lead to Monopoly

sec's new custodian changes could lead to monopoly

On February 15, the SEC’S proposed revolutionary rule alterations to ensure that investors’ assets managed by registered investment advisers are fully safeguarded. According to the new regulations, it is essential for these advisers not to misuse or squander customers’ funds. Additionally, they must be proactive in preventing any form of abuse and exploitation about investors’ resources.

SEC’s Change Will Benefit Big Players

The SEC issued a statement on the FTX and Alameda fiasco that cost investors over $8 billion, prompting them to take swift action. To ensure client assets are held safely in accounts if a qualified custodian goes bankrupt, they have proposed surprise audits conducted by independent public accountants of all investment advisors. Doing this will guarantee clients’ funds are safeguarded from future economic disasters like those seen recently with these two companies.

sec's new custodian changes could lead to monopoly

The new proposed SEC regulations will pave the way for major players in the market, giving them a significant foothold. Last year’s crypto executive order issued by President Biden aimed to make US fintech companies competitive globally. Already-licensed custodians like Coinbase and Gemini will find this rule change especially advantageous as traditional banking establishments race to obtain their own cryptosystem licensure.

The SEC’s proposed alteration to the custodian rule will drastically impact crypto exchanges that lack a banking accreditation. Recent events confirm this, with Kraken suffering financial repercussions due to distributing unregistered securities via its staking program.

This Change Can Also Offer Gatekeeping System to Custodians.

Despite its potential benefits, the new regulation has been met with criticism by those who fear it will create an unfavorable environment for smaller market players. 

“The SEC’s rule change would essentially grant a monopoly on cryptocurrency custody to regulated banks,” voiced Maya Zehavi, a prominent cryptocurrency angel investor. “This kind of gatekeeping structure could do more harm than good.”

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